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Momentum Based Investing with Just Mutual Funds

You have studied the idea of momentum or trend following investing, and are convinced that it can work. You understand that it can provide above market returns with lower risk. But the idea of trading funds every few months seems like a lot of work, and you don’t seem to have the discipline to actually follow the trades, or you are reluctant to pull the trigger on making these trades.

There is an alternative that has over 20 years of real time results to back it up, and it’s not an advisory service, but a family of funds that anyone can buy.

The No Load Fund X advisory service has been tracked in real time by the Hulbert Financial Digest for over 20 years, and over that period it has been one of the top rated advisory service for risk adjusted performance of all the services they track.

The philosophy of this advisory service is simple. The categorize funds based on their risk profile, and then select the top funds based on their recent price strength. They hold the fund and then rerank them monthly. If the fund is still in the top grouping, it’s held, otherwise it is sold and a new fund is selected from the top ranking.

One of the issues with the advisory service is that as mutual funds have started to add Early Redemption fees (ERF’s) and and brokerage houses have added other trading restrictions, it has become more difficult to follow this advisory service without running afoul of one of these limitations.

The management team recognized this, and a few years ago started offering mutual funds that followed the basic philosophy of the advisory letter. They started with FUNDX in November of 2001, and followed with 3 other funds in July of 2002. They all follow the same basic philosophy of rotating based on relative strength of the underlying funds, but the different funds choose from different pools of funds based on their underlying risk profile. For example the INCMX funds trades primarily in income based funds, while HOTFX focuses on higher volatility funds. More information and a prospectus can be found at


Now, none of these funds was in existence during the full bear market cycle of 2000 to 2002, so the historical risk measures like drawdown can’t be assessed completely, but the performance does seem to mirror the No Load Fund*X newsletter somewhat, so you can look at that to get some idea of the bear market performance you could expect.

One of the issues with these funds is of course the fact that as a fund of funds, there are two layers of fees that you are paying, the fees on the original fund, and the fees to the Fundx management team.

However, if you look at the performance of FUNDX since it’s inception, and compare it to the results of the No Load Fund*X service as tracked by the Hulbert service, it doesn’t seem to have a major impact on the returns. Also, it seems that the management group has started to make liberal use of exchange traded funds as part of their portfolio, so the fee structure on the underlying funds will be reduced significantly.

So, if you are looking to make a momentum based strategy part of your investment portfolio, but don’t have the discipline or the disposition to make trading for yourself work, the FundX family of funds may be a good choice for you.

Filed under Asset Allocation

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